Composition Scheme

Composition Scheme

  • Businesses with annual turnover up to Rs 1.5 crore* can opt for composition scheme
  • Only Manufacturers of goods, Dealers, and Restaurants (not serving alcohol) can opt for composition scheme. This scheme cannot be availed by service provider.
  • Advantages of Composition scheme  1. Less Compliance 2. Less rate of tax.

A business will need to comply with the following rules, as per the composition scheme under GST:

  • No Input Tax Credit can be claimed
  • No Inter-state supply of goods can be done
  • No GST exempted goods can be supplied
  • The words ‘composition taxable person’ must be displayed prominently on every notice or signboard at the place of business
  • As per the composition scheme bill format, the words ‘composition taxable person’ must be displayed prominently on every bill of supply which is issued
  • Services worth up to INR 5 Lakh can be supplied under the scheme, by a taxable person who is also supplying goods
  • Rate of taxes on Composition Scheme : –

The GST Composition Scheme Rate is a standard lower rate of tax, which is specified as follows:

EntityComposition Tax Rates
Manufacturer & Traders of Goods1%
Restaurants not serving alcohol for human consumption5%
  • As per the GST composition scheme rules, a composition dealer cannot issue a GST tax invoice, because he can neither charge tax from his customers, nor claim input tax credit. In other words, the tax needs to be paid out of their own pocket. Thus, as per the rules with regards to the GST composition scheme bill format, a composition dealer needs to issue a Bill of Supply, and in addition the words ‘composition taxable person’ should be clearly mentioned on it
  • A composition scheme dealer is required to file a quarterly return i.e. Form GSTR-4 by the 18th of the month after the end of the quarter. Also, an annual return i.e. Form GSTR-9A has to be filed by the 31st of December of the next financial year
  • Disadvantages of Compostion Scheme 1. No ITC 2. Not eligible to collect tax from customer 3. Not eligible to supply exempt goods.
  • Difference between Composition scheme and Regular Scheme
 Normal SchemeComposition Scheme
1They Calculate GST payable by deducting Output GST  – Input GST.They calculate GST Payable by paying Output GST  at lower rate of tax  ( NO ITC )
2They normally file monthly two return GSTR 3B and GSTR-1 + Annual Return total 25 returnsThey file quarterly return GSTR 4 + One Annual Return = 5 returns in year.
3They can make interstate sale as well as local sales.They cannot make Inter state sales.
4Higher rate of tax applicable 5, 12, 18, 28 %Rate of tax are lower i.e 1% for traders and manufacture and 5% for restaurant
5Any person can opt for composition schemeApplicable only for small assessee having turnover upto 1.5 crores only

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